Recent Posts

The Securities and Exchange Commission has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation[.]

The letters ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China[.] (Reuters)

China has a quota for foreign film imports, so securing one of those slots is a very big deal, particularly once you consider the growing market here. Combine that with all the investment deals the foreign studios have been doing lately with China Film Group and other local entertainment behemoths, and you can see how this could lead to some dodgy practices.

This is just the latest industry to fall under the FCPA stink eye. The Obama Administration has stepped up efforts to go after violators of the Foreign Corrupt Practices Act in recent years, and many of these cases involve China. For the most part, investigations by the Securities and Exchange Commission, which handles that part of the FCPA dealing with books and records (aka “accounting irregularities”), lead to fines. When the Department of Justice gets involved, then we’re dealing with possible criminal violations. At the moment, this issue with the studios is an SEC deal; we’ll have to wait and see if it expands in the future to include DOJ.

You can pick just about any industry and find some FCPA problems, but the most egregious examples involve sectors that are highly regulated and restricted. For example, the New Yorker‘s Evan Osnos, in a post about this latest SEC move, brought up gaming:

China has proved to be especially dangerous territory for foreign companies seeking to win the backing of local officials. Earlier this month, in a piece on the legal perils of Macau, I described how authorities are investigating the Las Vegas Sands Corporation’s compliance with the Foreign Corrupt Practices Act in the Chinese territory. Like the Sands C.E.O. Sheldon Adelson, Steve Wynn has found his business in Macau to be the subject of an increasingly rancorous legal dispute. In January, Japanese billionaire Kazuo Okada, the largest shareholder in Wynn Resorts, sued the firm, alleging that he objected to Wynn’s “inappropriate” donation of a hundred and thirty-five million dollars to the University of Macau. As a result of the suit, the S.E.C. launched an informal inquiry into the donation.

Coincidentally, while I was having lunch the other day, someone asked me why the U.S. even has a FCPA law. We talked about morality, regulation of U.S. businesses, etc. But what I am reminded of when I read about Sheldon Adelson’s donation to a university is just how difficult it is sometimes to determine when something is really a bribe.

Regulators and courts in the U.S. have been honing FCPA definitions for a long time, so practitioners can tell you with a great deal of knowledge whether a payment or gift might be a problem. For example, if a movie studio gave some cash to someone at an SOE media group to get a deal approved, that would be obvious.

But then I think about some of the acceptable practices that go on even in the U.S. and it makes me wonder if we really have a good handle on this stuff. For example, a company or lobbying outfit might hire the spouse of a U.S. Senator as a “consultant” and pay him/her a fat salary. In return, that company or lobbyist gets access to the Senator. Corruption? No, influence peddling is politics as usual.

Another example would be political donations. A company may not be able to/desire to publicly fork over a huge donation to a particular U.S. politician, so sometimes that cash will go to a “charitable foundation” established by the politician to be used as a slush fund. Or maybe the donation goes to the politician’s alma mater, political action committee or another third party. All perfectly legal.

The problem in China, and the reason why we’re getting all these FCPA cases, is that the Chinese system has not “progressed” to the stage where these pay-offs are seen not as bribes, but as an acceptable part of the political process. Once bribery is truly institutionalized, the debate over corruption changes quite a lot.

Don’t get me wrong, though. I’m not saying that the FCPA is a bad idea because of American institutional hypocrisy and should therefore be scrapped. No, I’m actually a fan of the FCPA and similar legislation in other countries, including China. What I’d like to see is political reform in the U.S. that would do away with “legal” forms of corruption. Don’t hold your breath on that, though. It’s not going to happen anytime soon.